How Brexit can still boost the City (but maybe not your portfolio)

it's garage garage. It's a minefield. I'm David Merritt and I'm Franci Laqua and this is in the City, Bloomberg's podcast, connecting you to the stories and the voices at the heart of the City of London. Dave, this week you were trying to make me pronounce Nigel Farage in a different way. Well, now in the correct way. Look, fran I know we don't disagree very often on this. I'm I'm afraid you're playing wrong. It is apparently it rhymes with garage, which has pronounced garage and not garage like

I do, I pronounce it garage. That we're going to have to agree to disagree on this one. But Nigel has been on our minds, hasn't he because you know, he turns out he is producing We mustn't call it investment advice, but investment insights. To our very own Harry Wilson tracked the numbers, crunched the data in true Bloomberg fashion over the summer, and he's going to join us

to talk through the rather unfavorable results. And you know, Brexit has been I'm afraid on my mind again this week, Francine. There was a poll that really caught my eye that showed that the public really are moving away from that decision to any sixteen. It seems like many more people now regret that vote. But what's really struck me is that the politicians are kind of behind the public on this one. No one is coming out and saying the Brexit has been a bad idea, at least no one

from the main parties. So this week we revisit Brexit in our conversation with Jared Lyons. He's a senior fellow at Policy Exchange and he's been one of the most prominent pro Brexit voices right from the beginning. Right he

has had a ring side set. I think it's fair to say, since you know that that sizemic voting into sixteen, both with Boris Johnson, but then of course over the summer with the dramatic implosion of the Trust administration and now of course pivoting to the new administration under Rishie Sunac. We have a pro dave a pro with us here in the podcast studio, A podcast pro right. I've never

been described as before. There you go. This is the first time quote podcast pro where we're here with Jared Lyons, very well known economists. But you have a podcast you do with your daughter who's a comedian. So we have started a podcast called What They Have Is Economics. We've recorded three so far the third one. But it's comedy. Is it comedy or economic or both? It's basically listenable to you can listen that's accessible relat So it's economics

and comedy with subjects. So yes, yeah, what the hell is economics? Right down in the UK? I mean, I feel like we've been you know, slapped around a bit in the last six months, just the last six months that it's been right, We've had a political crisis probably since two thousand and sixteen. But yes, the UK actually the last few months. It's a classic case of identifying the right problem, but not necessarily coming out with the

right solution. So the problem has been since two thousand and eight a lack of economic growth, not a UK specific problem, was Western European problem. So at least people now, I think, recognize the problem, but there's clearly a long way to go to address it. And so yes, so the rights diagnosis structural slow growth. And you're an advocate over the summer for for the radical solution, right to to supercharge the economy a little bit, you know, to

maybe to cut that. But it all went horribly wrong. You can describe why it went wrong and what your position is. Yeah, well I was Penny Mordans economic advisor and so shea unfortunately didn't make the final two um in terms of the Conservative leadership race. But my policy proposal was that we needed a three arrow approach, indeed,

regardless of whose in power. One arrow is monetary and financial stability, reducing inflation and making the city competitive competitive not only for its own sake but to help the rest of the UK economy. Second arrow is using fiscal policy in a very proactive way, Canadian like, but at

the same time reducing debt to GDP over time. And the third arrow was a whole supply side agenda, all the eyes as I called it, investment, innovation, infrastructure incentives, and if you get all those right then inequality is reduced. So basically three arrows comprehensive, avoiding a dash for growth, very much longer term supply side investment driven, but using fiscal policy and not as we've done since two thousand eight, rely on monetary policies the only shock absorber for the economy.

So you're one of the Osso City grandees that was for a Brexit right from the very beginning. Have we gone anything out of Brexit? Yeah, well, the UK has very much positioned itself outside EU. Brexit is a political process. I think it's important to differentiate between an event and a process in the sense that the event happened. But to actually make Brexit work both economically and financially, is not just leaving the EU. It's what you do when

you have left. And so in terms of looking at that, well, I would say partly because from two thousand six nineteen we had a political crisis and since then attention has not really focused on addressing the issue. And it comes back to David's original question as well about what we need to do to actually get growth up in the UK. In fact, both of these issues should come together. It's about what's the challenge, what do we need to do and what do we have at our disposal now host

leaving the EU to actually make that work achievable. So do you do you still think it's a little bit too soon then to kind of pass judgment on brexitt. I mean there is a narrative now that well, some of the effects were you know, there was clouded by cope. We've had a pandemic. You know, it wasn't really clear to see. There is a bit more of a consensusive feels to me anyway amongst economist commentators, the ms of clearing the numbers are in Brexit's been bad for the

British economy. Do you think it's too soon to say that, Well, Brexit should be a big positive for the UK economy and it's about using the ability to actually make the most of reposition in the UK in the changing and growing global economy. But it coming back to your question, David, if you actually look at the comparison between Save Britain and the three major economies on the continent who like the UK in the G seven so Germany, France and Italy.

Since June two thousand sixteen, on the major economic indicators growth, unemployment, even inflation, the UK is very much in the middle of the pack. Can we take growth since two thousand sixteen, the UK has grown at a faster rate than Italy. Cumulatively, grown at a faster rate than Germany since two thousand

and sixteen, not as fast as France. Unemployment are unemployment rate is half the year in Fresh Secretory, right, I mean it was in different If you look into the five years ago and the UK five years ago, it's it's it's difficult to compare because it's the was doing much worse and it ends and the UK at the time was doing so much better. So comparatively the UK is losing more, not really well since two thousand eight.

Western Europe, but basically regardless which country you really look at, has been in pretty much the same boats, same position. When we look at the world of but say when we joined the EU back in nineteen seventy three, then we're there nine countries in it. At that time, the EU accounted for about six of the world when we left just after we left in two sixteen. Indeed, if you took two thousand nineteen, if you wanted the remaining

twenty seven countries accounted for roughly world economy. If you take even the most level projections for the world economy five years time, EU then will be less than one tenth less than the size of India. So the issue is that clearly the UK needs to have a sensible relationship with the EU, but we need to reposition ourselves globally and at the same time make sure that we

address the domestic challenges that are clearly very apparent. In coming back to David's point, when I advocated leaving the EU, my point was looked quite frankly, this cannot be the only economic issue of the day where all the arguments on one side, and as I actually I would say correctly pointing out at the time, there are arguments both for and against in terms of the whole basis wants

to be decided politically to leave. The issue about leaving was that, as I said at the time, you can't leave something that you've been in for over forty years and expected to be easy easy to leave. M So I called it a Nike shrush in terms of its impact. The immediate impact in terms of the negative side, will

be veryly apparent. But coming back to the early question from Francine, it's not just the political event, is actually what you two when you've left, and so the whole issue is how we reposition ourselves And that's very much. I mean, what happened that it was so difficult to you know, to find something else would kickstart this economy? Was it timing? Was it just issues that were badly

thought out? Why it went wrong? Was I don't think they took on board the febrile states of the markets, how to handle the markets, and what they seemed to advocate at the end was interpreted as a dash for growth rather than what was needed, which was a sustained supply side driven sort of investment driven growth agenda. But like, why why were we not able under conservative governments all pro brexit to really capture what was needed? And you know, why has it been so difficult? And if you're an

outside investor, how would you look into the UK right now? Yeah? Well, I'm I don't sit inside the tent. So I've not been advising the governments since twenty sixteen. But the political crisis from twenty sixteen to the end of twenty nineteen really did not help. It didn't help anyone. Also, we've then had COVID since but we were now sell the election of Boris Johnson, I've until his landslide, when then

when he got Brexit done? So did things improve at that point, because it's we've still been We've been in just a different political crisis ever since, haven't we. I mean it's kind of that which which are all still really can be dated back to Brexits now. I mean it's never really ended. The Brexit referendum was a political process, but it's a political process that actually allows you to

then start to drive the economic and financial agenda. You can't leave something you've been in for forty odd years and expect it to be easy. The Transition Agreement or whatever you want to call the different aspects of it. We have the relationship with Northern Ireland, but with the new trade arrangement with the EU, clearly that could have gone in a different directions. So it's possible to construct different scenarios. But the point is it's about repositioning the

UK and as I was mentioned earlier. We've done relatively well on the whole host of the measures, but I would actually say I didn't. I don't think the opportunity has being seized because I think the city is probably the most interesting area that we can focus on. From here, How would you kick start the city of London today? For a financial center to be competitive, it really needs three key characteristics, or three key factors all coming together.

One is it's inherent characteristics, second is the regulatory environment, and the third it needs to be the place that customers want to do business. And that's a function of many things, including the depth and breadth of markets. So ensure that you're inherent characteristics are secure control of the controllables in some respects. Second, ensure that your regulatory agenda

fits what you're trying to do. And third, it's about bringing that together alongside the need for customers to see you as an attractive place to do business in the city is still pretty well placed there. Z Gen serve they shows with the second most competitive globally, but we shouldn't underestimate the continued challenge from New York and fromation economies.

But we've seen other data since two thousand and sixty or two thousand nineteen, which very much are in line with what one would have expected in terms of jobs, in terms of trading and in terms of other activity. Some firms, depending on their business model, have had to adjust, but that's moving some things from London to Dublin, London to Luxembourg or wherever. That's also related in the jobs.

But at the same time, the UK has remained pretty competitive in the number of areas, so it's very much up for grabs what we do from here. The important thing is not to be complacent. I am interested by what you say about this serving of the rest of

the country. We don't hear that very much when it comes to discussion about the city as a financial powerhouse, you know, like it's all about the you know, how much money can be generated here for the banks, not how is the city the financing engine for businesses across the country. That's a different sort of agenda. But how can the city he really served that function? What needs

to change? Okay, there's a whole host of different aspects here, but the domestic agenda can be seen coming back to early point I mentioned about trying to address or filling those gaps in terms of patient capital and the funding gap facing small firms is that a bank is I mean a bank fills in usually you know, funding too small and medium sized enterprise. It does it have to be the whole city of London. Yeah, I thought I was trying to avoid mentioning the McMillan gap today because

I mentioned it too much recently. Then this podcast more fun than yours because the McMillan gap was first in identified in one which was that banks were not servicing the needs of small firms. But coming back to your question, Frantic, we've moved on from banks, but banks player passing that.

If you actually look at the bars or capital requirements, it's quite remarkable how banks, and it's true not just in Britain, offices international are incentivized to do to say really to buy government debt, zerio capital or to lend to the property sector, and they do that, particularly in the UK where property prices unfortunately have moved so high

relative to people's earnings and incomes. But the real issue is not just with banks, it's with the whole financial sector about how it provides finance to small firms post Brexit so to speak. When Richie soon it was chancellor.

He very much was aligned with the idea of regional centers become attractive to onshore, back office and other services, and City UK, where I used to be on the board many years ago, has been very big on pushing the fact that the city, come back to your point, David, is a whole of UK success story, and indeed Center for Policy Studies has written about this as well, that we often overlook the fact that two thirds of jobs

in the financial center sector are outside of London. London is really at the forefront internationally, but there are many different aspects and also the financial inclusion as But I remember presenting the paper to the Commonwealth Finance and this conference on this back in the day about financial inclusion, and in that respect then the focus was very much

on so called emerging economies. But the fact of the matter is that banking the unbanked is a bigger shoot here in the UK, and financial exclusion is very much

related to poverty, inequality and social exclusion. So there are many different facets that we can see the city playing a bigger role domestically in and indeed this should be not a political issue, it should be central to making the city sort of serve the needs domestically as well as at the same time remaining at the forefront competitively internationally.

Just thinking about that competitive position now internationally again, I mean, we've been talking a lot, and we've had guests in this podcast in recent weeks looking at the growth in Paris, say of the stock markets overtaken London in terms of market capitalization, and there is this drip drip of jobs that are cropping up in other battles around you, and a lot of business going to New York as well. So you mentioned London is still coming out pretty well

in those rankings. How optimistic are you that London can maintain its position in the coming years. The city, generally, if we take it away from the politics, is about what you do, not just sort of resting on your laurels, and so it's about how you can play to those three key areas that you need to play to for

an international competitive financial center. One, you're inherent characteristics. People usually quote things like the rule of law, which is vital important English language, but obviously a I might challenge her. But data centers and the ecosystem is really important here, and you need to play to your strengths on those so you do need to take action to make sure your inherent characteristics are really supportive. Second, the regulatory agenda

is really very important here. The UK can be at the forefront of subtech and red tech the whole that's very much play right now, right, this is all to play for. Yeah. But the interesting aspect here is that often the debate in the media can talk about regulation for regulations sake. But regulation, yeah, Well, in two thousand and eight, when we have the global financial crisis, one way to think about it is a pendulum which was at one extreme self regulation and that had all the

sorts of problems that we saw. Unfortunately, the pendulum in many respects has swung straight very much to the other extreme.

Unlike a pendulum, it needs to settle in the middle because while you need a stable and predictable prudential regulatory environment, regulation is stepping stone to economic growth, cities, competitiveness, and also financial stabilit ring fencing rules brought in after the financial crime while it took a while to event right and now being peddled back, is that the pendulum swinging back. In terms of the whole bank area, there are a whole host of issues, but banks um about them being

internationally competitive. The ring fencing is one aspect. It's also interest paid on their reserves. At the Bank of England. A lot of the debate there is about financial stability. Maybe we need to move to a tiered system on that because the taxpayer through the treasury and deemnifies the asset purchase facility. But coming back to your point is

about um that pendulum moving back to the middle. So you don't want to penalize the banks, but you don't want to go back to where we were pre two thousand or and theate, where financial instability was very much building up beneath the surface. So it is about adjusting things. So regulation does need to reflect that. Do you think therefore the bank needs a major overhaul you talk about its processes and how it's analyzing the markets and how it's forecasting. Do you think there needs to be a

shake up of the Bank of England. Well, yeah, absolutely that this shouldn't be seen as a challenge to its integrity or it's independence. This should be seen as part of a necessary process. What one needs, coming back to your question, is not just an attack on the Bank of England, as you called it. It's a fact to make sure that our institutions are fit for purpose. Jared,

thank you so much. Jared Lyons neverlags a gray self maybe the best and so you know, frankly, I wouldn't mind having him on my team when I was a manager, as long as he believes that everything I said. But then he would have his own ideas with me. That

was the voice of Tim Steer. He once managed hundreds of millions of pounds for clients of Artimist Investment Management, and whose senior reporter Harry Wilson approached for help in deciphering how successful these investment tips by Noigel Farage performed. So Harry set out the summer to try to understand whether the investment insights of a newsletter that Ferrage promotes could pay off. And the answer, it seems not so much that you're getting it Franston, and you're getting it right, Okay.

So we caught up with Harry for more of his investment journey and what he learned when he asked the question, can Nigel make you rich? So Harry, welcome to the podcast. People cannot get enough of the story. Take us back to when it all began. It began over the summer when we started having a conversation about a few people on the desk have been noticing these these emails that Nigel Ferrage had been sending out. I'm Tim Culture, I'm

the head of digital for Bloomers Operations in London. I saw an advertisement for Fortune and Freedom and it really made me wonder if Nigel Farage was indeed making specific investment insights that that that we could actually track. What happened was about November December, he Nigel Ferrags joined up with this company called south Bank Research in London and there he launched a podcast and newsletter called Freedom and Fortune.

Hello and welcome to Fortunate in Freedom with Nigel Frage. Yeah, the idea is that Fortunate and Freedom will be a daily email and in Freedom and Fortune, Nigel Frage essentially gives you his views on the world, geopolitics, economics, everything with his sort of indomitable Nigel Ferrage twist twip because because they go together, right, freedom and Fortune right there exactly. It's it's it's a pretty obvious allusion to to Brexit. It there was all sorts of things. You know, it's

about taking back control of your money. You know, a phrase that many of us in Britain have heard many times before in a different context, but this time it was freedom and fortune to go and find your fortune in the financial markets. So what we first started thinking about was, well, is there any kind of way of

tracking his advice here? And when you go onto the free site the freedom and Fortune thing, there are a couple of stock recommendations, but there wasn't really much to get our teeth into, which is when I started having a closer look at it. And actually it turned out there was a subscriber newsletter called UK Independent Wealth which was created by Nigel Farage and which has a stock portfolio which was put together by a former UBS banker based in Buenos Aires called rob My Strand. And that's

what we started tracking. So, um, we we're looking at creating this portfolio that we're going to try to match the performance of this uh suggested portfolio from South Bank. Yes, so, I mean I think the idea here is that we just want to try so a lot of people won't even know that actually Nigel Forrage, you know, provides investment advice, and so you built a portfolio, imaginary portfolio of a

hundred thousand pounds. How did it do? It didn't do terribly well, So we we we took a sort of a few runs at how to track this this portfolio. First thing to say, by the way, Nigel Farrage vehemently denies that he provides advice. That's one thing we got when we spoke to him, very important legal point that right, very important legal point that he does not legally provide advice. These are he promotes this this eerrvis but gave back to the performance. So we looked at a few ways

to track it. Now. I went and spoke to a former fund manager, Tim Steer, who used to manage hundreds of millions of pounds at Asthmas Investment Management, and he gave us some advice on how to do this um and that runs for whatever it runs for until the second one comes in. The second one comes in, your liquidates, you look at it protorfolio. So you've now got a hundred ten thousands you put So we looked at essentially

rebalancing portfolio. So what you do is you look at the stock advice, you take the recommendations as they come, and then you just rebalance the portfolio each time a new recommendation is made, and that Tim told us was

the best way of tracking a performance. So putting all this into the Bloombow terminal, we came up with the results and it came out basically that you have about a You lost about eight percent or eight thousand pounds of your starting a hundred thousand overlast roughly to two years, and that compares pretty poorly with just putting your money into an index tracker, where you'd have got something like a well, you've gained about eighteen so a difference in

performance of roughly about twenty five th pounds. I mean, I love this, Harry. It's so bloomberg that we've dived into the data here and tracked it. I mean, do you think it's too much to say we can draw some parallels here to the performance of Britain, who took Farage's advice. But by the way, are very awn Allegra Stratton told me it rhymes with Garage, so it's Farage

we're pronouncing wrong this year. So Mr Farage recommended Britain revu and the g d P hasn't picked up in the same way post pandemic has its compared to the rest of the world, so we've sort of underperformed the global benchmarks. Do you think there's some sort of synergy here with his investment provide? I think probably the one thing you might take out of this, and again this is something that came through to me from talking to Tim Steer. There are are fun matachment expert was his

point on this. This portfolio is the problem is that you don't have any world equities in it, so you've you've got a pure selection pretty much apart from one E t F for Brazilian E t F. You've essentially

got a concentrated position in the UK. But the key thing that's wrong with the portfolio in my view, is that it's recommending you buy UK assets and there's been a big move in the last ten years, sadly for investors generally to move away from UK assets in their portfolios and their pension funds to earning global assets in their portfolios, and the UK markets just haven't done particularly well in recent years for a variety of reasons, Brexit being one of them, but there there are others, and

that means that you haven't had, for instance, the performance in US text docs, which is actually I should say one area where they were particularly gloomy on the podcasts. Are listening to the Nigel Faratsh podcast. But I think the big shark downward movements reflect one thing we've been saying since we launch for Stood and Freedom. Don't touch the tech sector, right, don't go near it. It's hugely overvalued.

Each year that goes by it gets more and more bubbly. Yes, of course there are some fantastic tech companies, so Nigel doesn't like. He doesn't like foreign stocks either. Well, he certainly doesn't like US tech stops. He was very down on those in the many, many podcasts and newsletters society that I listened to and read. The nasadac's grossly overvalued. And I do see these setbacks are something of a validation for that, because when things are training at multiples

that are always beyond comprehension. You know, he's certainly not a someone who's particularly totally against tech. I mean, he talks quite a lot about blockchain and bitcoins and cryptocurrencies, and there's there's an awful loss of When you sign up to this service, you don't just get your freedom of fortune, you start getting all sorts of other suggestions

about things you might invest in. And crypto is a very heavily plugged market, so you weren't bank very for around two yes, so so you know that we weren't just looking at this. I guess as just how the portfolio did. There's all sorts of kind of weird and wonderful things you start getting put in front of you when you when you sign up to this thing. So

one of the areas it seems so so nuts. Now basically they were suggesting a thing called a cash surge calculator, and we were told that this is such a secret investment that the guy who designed it has put it onto a USB stick and put it in a vault

buried underneath the Nevada Desert. Such as the secrecy and and the value of this this algorithm and what it turned out was essentially it's basically every couple of weeks Americans put investments there for a one kpans and the idea is you since you invest in those cash windows, so when Americans invest in therefore one cage, you put your money into the stock market and hey, presto, you'll

get sort of lifted by this. This brief inflow of funds and that will produce these amazing returns for you. And it's presented as this is, you know, the most amazing thing ever. No one's ever thought of this. Well, unfortunately, when when we spent went and found some academics who tracked this, they the idea to them that this was something so secret that had to be buried on the Nevada desert was frankly ridiculous. I mean, did we have to dispatch a reporter to Nevada to try and find

this thing? Not? Not as yet. If you're offering me a flight to Nevada, Harry is taking that fire. I'll take that fly. I mean, have we spoken to Mr Farade or should we call him Nigel? Did you manage get ahold of him to defend his position? So, you know, as as always, we we went out for comment. We tried various ways and eventually got him on the telephone. It was a fairly brief conversation. I think roughly about

a minute. Um. I think the question that seemed to finish it off was when I when I asked if he was actually following his own advice. At that point the connection broke for whatever reason. And yes, that was That's all I managed to get. But as I said, the one thing he was very insistent on is that he does not provide advice. Yeah, I say garage. The problem now how it pronounced his name, Davie, I say garage, garage,

regional British accent. Harry. Thank you so much, great story, no worries, Thank you, Thanks for listening to this week's in the City. We will be back next week, but in the meantime, if you like our show, please head on over to Apple Podcasts or wherever you listen to podcasts and rate, review and subscribe. This episode was hosted

by me David Merritt and me Franci Laqua. It was produced by Summersadi, editing and sound designed by Blake Maples, and special thanks to Gerard Lyons, Harry Wilson and altogether Now Nigel Farage. Three